Deciding Where to Invest

Deciding where to invest can be difficult. To succeed, you need proper timing, strategies and enough capital to navigate through both the good and bad times of the overall market. Even the best investors lose money when the stock market drops, but what makes them different is that their profits far exceed the losses, and their numbers are always better than the general market. The stock market is a dangerous place for the uniformed investor, but to those who know what they're doing and play an active role in investing, the rewards easily outpace the risks.

Index Funds

For new investors, buying an index fund is often the best way to get started. You can buy an index fund, which operates just like a mutual fund, but the major difference is that your money is riding on the performance of one of many indexes that track the market. For example, the NASDAQ composite index accurately follows the ups and downs of every stock on the NASDAQ marketplace. Buying into one of these funds can start at as little as a $250 investment in a index fund. One major advantage is that the fees are very low, usually less than .50% per year, so you can rest assured that your money is working for you, and you're not overpaying. Many famed investors recommend index funds because their performance is very similar to other mutual funds, but without the added cost.

Mutual funds

Mutual funds are also a very popular choice because they are easy to invest in, and no critical knowledge is needed to produce a return. These funds are managed by professional managers who have an incentive to do well. For them, doing well means more investors and more they can make on fees. Unfortunately, the fees for these kind of funds can go as high as 2-3% of your capital per year, but you're safer knowing that your money is in good hands. Mutual funds pool together money from investors around the world to invest in the world markets, commodities, and even in safe investments like bonds. This will allow the starting and professional investor alike some diversification into many different investments.

Hedge funds

Hedge funds are generally only open to millionaire investors, but some cater to smaller investors with a significant amount to invest. These funds are risky because they take additional risk to produce higher profits. While these should not make up your retirement portfolio, hedge funds that invest in stocks and the world markets generally outperform mutual funds because they are legally allowed to take on more risk through investment strategies such as hedging, thus the name, and short selling, or selling stock that is borrowed from someone else. The fees on these funds are ridiculously high - as much as 2% of your capital per year plus 20% of the returns of the fund. However, hedge funds are run by teams of professional investors who know the ins and outs and are generally able to beat the returns of other mutual funds, even after fees are considered.

Starting with an index fund, or perhaps a mutual fund, is an excellent place for new investors.  However, by familiarizing yourself with the stock market, you always have the option of managing your own portfolio, or perhaps even venturing into the profitable arenas of day-trading.